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What is a Confidentiality Agreement and Why are they So Important?

A confidentiality agreement, which is also known as non-disclosure agreement or simply as an NDA, is simply a contract between two or more parties where the subject of the agreement is a promise that information conveyed will be maintained in secrecy.

These agreements can be mutual agreements, where both parties are obligated to maintain secrecy, or they can be unilateral agreements, where only the receiving party becomes obligated to maintain secrecy.

These types of agreements are particularly useful when one is disclosing information that is valuable so long as secrecy is maintained (i.e., a trade secret), which can include both invention related information and business related information. Indeed, if you are going to attempt to claim the valuable information you possess is a trade secret you must take reasonable steps to preserve the secrecy. An agreement that obligates the recipient to maintain your trade secret in confidence becomes absolutely necessary because once the trade secret is generally known it is no longer a trade secret. See The Secrecy Requirement.

Indeed, you can use a nondisclosure agreement to protect any type of information that is not generally known. And the use of a confidentiality agreement means that those who receive the information are obligated to maintain the information in secret, which legally prohibits that disclosure subject to an agreement from being a general disclosure that would defeat a trade secret.

The creation of a confidential agreement is really the creation of a confidential relationship. Generally speaking, such confidential relationships can usually only be created in writing.

It should be noted, however, that while some court cases in some jurisdictions do allow oral creation of such a confidential relationship, and some court cases in some jurisdictions do allow actions to be used as evidence of the creation of such a confidential relationship, you should NEVER rely on or anticipate that a court will enforce an oral confidentiality agreement based only upon action.

The reason you should never rely upon an oral confidentiality agreement is simply because it is exceedingly difficult, if not impossible, to prove the existence of an oral agreement and/or actions that suggest the creation of such an agreement. This is because of the “he said she said” problem. Essentially, a case that relies upon an oral agreement will be decided based on who is believed. Don’t put yourself in this situation if you can at all avoid it. You should always attempt to get the agreement in writing (whenever possible), even if you need to water it down a little to get a signature.

Indeed, a simple confidentiality agreement will usually seem less intimidating, but may actually provide the party disclosing the information more rights. For example, in this simple confidentiality agreement there are no provisions that would absolve the receiving party of the obligation to maintain the secret if and when the information became publicly available, as is the case in a fairly typical, longer confidentiality agreement.

Agreements that create a confidential relationship are particularly useful when you have an invention and you have not yet filed a patent application. Still, if you can get a confidentiality agreement signed even after you file a patent application that is preferable. See Justified Paranoia. While you will have placed a stake in the ground to define your invention when a patent application is filed, no exclusive rights will exist until the patent is actually granted. Therefore, to maintain the rights to the invention while a patent application is pending a confidentiality agreement is required. Furthermore, it is quite possible that when disclosing an invention you will also disclose marketing and other business information not disclosed in the patent application, which itself could be maintained as a trade secret.

The Author

Gene Quinn
is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. Gene is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments.

Stuart FoxDecember 17, 2017 8:19 pm

Many people recommend Confidentiality Agreements – they may be the best or only solution for Trade Secrets though I am sceptical of them in respect of inventions … say you make a confidential disclosure to one party and they relay it to another/s – the link may be very difficult or impossible to prove.

Further, there is the reluctance of many to agree to confidentiality and after all you are requesting them to agree to something they don’t know about.

The fact is that many or most corporations and professionals specifically require inventors to sign their form in which the submitter formally agrees that the receiver is not bound to keep information confidential – exactly the opposite of what the inventor desires.

To me the only solution to establishing internationally recognized invention / patent priority date rights is for an inventor to file a patent application, even a provisional specification – preferably via a professional patent practitioner or at least pro-se doing the best one can. This is preferable to Confidentiality Agreements or relying upon Grace Periods. It is even possible in some jurisdictions to register priority sans any patent office fee.

Stuart Fox

John clarkMarch 2, 2018 5:49 pm

If a confidentiality agreement is signed by the person requiring the CA and the recipient . If the recipient breaks (breaches) the agreement are there any implied legal actions available or do violation precautions need to be specifically included in the original Confidentiality Agreement .

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